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Government in America: People, Politics, and Policy Thirteenth AP* Edition Edwards/Wattenberg/Lineberry

Chapter 14

The Congress, the President, and the Budget: The Politics of Taxing and Spending Pearson Education, Inc., Longman Š 2008


Introduction  budget-

a policy document allocating burdens (taxes) and

benefits (expenditures)  deficit- an excess of federal expenditures over federal

revenues  expenditures-

what the government spends money on

 revenues- sources of money for the government 

budgetary squeeze- Americans want the president and Congress to balance the budget, maintain or increse the level of government spending on most policies, and keep taxes low. Pearson Education, Inc., Longman © 2008


Sources of Federal Revenue  Income

Tax

– Shares of individual wages and corporate – – – –

revenues First peacetime tax (1894)- page 436 The 16th Amendment (1913) permitted Congress to levy an income tax. Individual taxes are the largest single revenue source for the government (.43/dollar). Income tax is progressive: Those with more income pay higher rates of tax on their income. Pearson Education, Inc., Longman © 2008


Sources of Federal Revenue  Social

Insurance Taxes-

– Additional taxes for specific funds: Social Security

(1935) and Medicare (1965)

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Sources of Federal Revenue  Borrowing – The Treasury Department sells bonds—this is – – – –

how the government borrows money. The federal debt is the sum of all the borrowed money that is still outstanding. 9% of budget = interest on debt The government competes with other lenders. The government does not have a capital budget (everything counts against current operating budget.) Pearson Education, Inc., Longman © 2008


Sources of Federal Revenue Federal Debt: all money borrowed over the years and still outstanding

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Sources of Federal Revenue  Taxes

and Public Policy

– Tax Loopholes: tax breaks or benefits for a few people – Tax Expenditures: revenue losses that result from

special exemptions, exclusions, or deductions on federal tax law (examples pg. 442) – Tax Reduction: the general call to lower taxes – Tax Reform: rewriting the taxes to change the rates and who pays them 

Tax Reform Act of 1986—extensive tax reform (pg. 445)

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Sources of Federal Revenue

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Federal Expenditures

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Federal Expenditures  Big

Governments, Big Budgets

– A big government requires lots of money. – As the size of government increases, so does its budget.

 The

Rise and Decline of the National Security State – In the 1950s and 1960s the Department of Defense

received more than half the federal budget. – Defense now constitutes about one-sixth of all federal expenditures. – One reason for growth of government Pearson Education, Inc., Longman © 2008


Federal Expenditures

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Federal Expenditures  The

Rise of the Social Service State

– The biggest part of federal spending is now for

income security programs. – Social Security is largest program

Social Security has been expanded since 1935 to include disability benefits and Medicare.  These benefit programs face financial problems with more recipients living longer. 

– Another reason for government growth Pearson Education, Inc., Longman © 2008


Federal Expenditures

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Federal Expenditures  Incrementalism – The idea that last year’s budget is the best

predictor of this year’s budget, plus some. – Agencies can safely assume they will get at least what they got last year. – Focus & debate on the increase over last year – Budgets tend to go up a little each year.

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Federal Expenditures  “Uncontrollable”

Expenditures

– Spending determined by the number of

recipients, not a fixed dollar figure – Mainly entitlement programs where the government pays known benefits to an unknown number of recipients 

Social Security

– The only way to control the expenditures is to

change the rules.

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The Budgetary Process  Budgetary

Politics

– Stakes and Strategies  All political actors have a stake in the budget.  Try and tie their budget needs to national or political needs – The Players Lots of players, with the president and Congress playing important roles  Almost all committees are involved in the budget. 

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The Budgetary Process  The

President’s Budget

– Presidents originally played a limited role in the

budget. – Now budget requests are directed through the OMB and president before going to Congress. – The budget process is time consuming— starting nearly a year in advance. – The OMB, the president, and the agencies negotiate budget requests. Pearson Education, Inc., Longman © 2008


The Budgetary Process

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The Budgetary Process  Congress

and the Budget

– Reforming the Process  The Congressional Budget and Impoundment Control Act of 1974: an act designed to reform the congressional budgetary process  It established the following: – Fixed budget calendar – A budget committee in each House – The CBO, which advises Congress on the probable consequences of its decisions, forecasts revenues, and is counterweight to OMB Pearson Education, Inc., Longman © 2008


The Budgetary Process  Congress

and the Budget

– Reforming the Process (continued) – Budget to be considered as a whole – A budget resolution binds Congress to a bottom line for the budget before Congress considers appropriations. – The current budget is then reconciled—program authorizations are revised to achieve required savings – The new budget is authorized and appropriated. • Authorization bill: establishes a discretionary government program; set goals and maximum expenditures • Appropriations bill: funds programs within limits established by authorization bills Pearson Education, Inc., Longman © 2008


The Budgetary Process

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The Budgetary Process  Congress

and the Budget

– The Success of the 1974 Reforms  Between 1974 and 1998, every budget was a deficit budget.  Congress misses most of its own deadlines.  Congress passes continuing resolutions to keep the government going until it passes a budget.  Omnibus budget bills often contain policies that cannot pass on their own. Pearson Education, Inc., Longman © 2008


The Budgetary Process Annual Federal Deficits (Figure 14.6)

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The Budgetary Process  Congress

and the Budget

– More Reforms  Congress passed bills to try and control the deficits.  By 1990, Congress focused on increases in spending.  Both parties claimed victory for the budget surpluses that began in 1997.  Economic downturn, income tax cuts, and increased military expenditures brought a return to deficits by 2001. Pearson Education, Inc., Longman © 2008


Understanding Budgeting  Democracy

and Budgeting

– Many politicians “spend” money to buy votes. – With many groups and people asking for

government assistance, the budgets get bigger. – Some politicians compete by trying not to spend money. – People like government programs, but they really do not want to pay for them, thus there are deficits and federal debt. Pearson Education, Inc., Longman © 2008


Understanding Budgeting  The

Budget and the Scope of Government

– In sum, the budget represents the scope of

government. – The bigger the government, the bigger the budget – Limits on funding (taxes) can limit what the government can do.

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Summary  Federal

budget consumes one-fifth of GDP  Government growth has meant higher taxes to pay for additional services, often through deficit spending.  The budgetary process is complex.  The budget is used, some argue, to buy votes, leading to an ever larger government. Pearson Education, Inc., Longman © 2008


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